Technology companies and their distributors and retailers depend heavily on the ability to store inventory for varying durations of time depending on their actual business needs and cycles, as those needs and cycles change. Protecting that inventory while in storage is thus critical. A recent set of decisions out of New York involving LaptopPlaza, a distributor of laptops and tablets, is illustrative. See LaptopPlaza, Inc. v. Starr Indemnity & Liability Co., 2017 U.S. App. LEXIS 16841 (2d Cir. Sept. 1, 2017), and LaptopPlaza, Inc. v. Starr Indemnity & Liability Co., 2016 U.S. Dist. LEXIS 112314 (S.D.N.Y. Aug. 17, 2016).
Over a weekend in December 2013, LaptopPlaza leased three storage trailers for three to four days to hold inventory while it installed rack storage inside one of its warehouses located in Miami, Florida. The trailers were parked adjacent to the warehouse such that they “abutted the bumpers of one of the building’s loading docks.” “The trailer and building had separate doors and locks, and the trailer’s doors and locks were not integrated into any alarm system in the building.” A security guard was “tasked with watching” the warehouse and the three storage trailers. During the weekend in question, a group of women apparently approached the security guard and sought assistance with their vehicle. When the security guard obliged, “a thief driving a tractor cab stolen from an adjacent business connected the cab to one of the [leased] trailers containing LaptopPlaza merchandise and drove away.” LaptopPlaza suffered a loss in excess of $700,000 as a result of the incident.
At the time of the theft, LaptopPlaza had in place a marine open cargo insurance policy purchased from Starr Indemnity & Liability Company. The Starr policy contained what is called a “Warehouse Endorsement” extending coverage to “goods and merchandise which are owned by or held by the Assured [LaptopPlaza] . . . while temporarily detained in warehouses.” (emphasis added) The endorsement later stated that, “[i]f . . . the Assured shall store or warehouse any goods at locations (excluding the Assured’s premise) not listed in Clause 12, this insurance shall automatically apply for an amount not exceeding (see schedule). . ..” Clause 12 listed the Miami warehouse premises from which the inventory was stolen, with an assigned limit of $10m; unnamed locations had an assigned limit of $50,000.
Based on the wording of the Warehouse Endorsement, Starr denied coverage for the theft of the trailer and inventory contained inside. Starr argued that, among other things, (a) the stolen trailer was not a “warehouse” such that the stolen inventory did not constitute goods and merchandise “temporarily detained in warehouses,” and (b) even if the catch-all language of the endorsement covers trailers, the location from which the trailer and inventory were stolen was a listed location such that the default coverage for unnamed locations did not apply. When the coverage dispute went into litigation, both the District Court and the Second Circuit Court of Appeals agreed with Starr, on both grounds.
The Courts first looked at common definitions of “warehouse”, e.g., “a building used to store goods and other items” (Black’s Law Dictionary 1817 (10th ed. 2014) and “a structure or room for the storage of merchandise or commodities” (Merriam-Webster’s Collegiate Dictionary 1331 (10th ed. 1998). The Courts concluded that the stolen trailer was not a “warehouse” (i.e., a building or structure), because it was parked adjacent to and not a part of the Miami warehouse. Thus, the stolen inventory had not been “temporarily detained in warehouses” and the first part of the Warehouse Endorsement did not apply. The Courts further ruled that, since the Miami warehouse in question was actually listed in the policy as a covered location and the leased trailers were parked at such listed location, the catch-all provision extending limited coverage to unnamed storage locations also did not apply.
In short, the policy did not cover the loss, because LaptopPlaza stored the stolen inventory outside of its warehouse but still on the insured premises.
The LaptopPlaza decisions are a reminder to carefully review the language of your insurance policy to make sure it accurately reflects the manner in which you actually store your inventory and, more broadly, conduct your business operations. If you decide to permanently or temporarily change how you conduct your business, make sure your policy continues to respond in the event of a loss. If it doesn’t, work with your broker and/or a qualified risk management consultant to make sure your insurance program addresses the actual risk exposures your business faces.